I'm looking at 3 deals, and would love your thoughts on them

Real Estate Deal Analysis & Advice
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I'm looking at 3 deals, and would love your thoughts on them

Leo M Christensen
Investor · odense, denmark · Member since 2016 · 14 posts · 5 votes

I'm currently the owner of 3 units (doors) in some of the major cities of my country, Denmark. My situation is this. I quit my job in order to complete my BRRRR project which will be done mid january. I've found a good team around me, one carpenter and allround handyman for rehab and a guy who has 88 units (doors) currently. It's a good team, even though the other investor is pretty diluted in various businesses and thusly not completely focussed all of the time. This is where I believe I contribute to the team.

I primarily look at multifamily with 6+ units, because I'm not able to get loans for SFH do to by debt to income ratio, and this brings me to the three deals I've found.

deal a)

A foreclosure deal in a rural area with 9 units where only 2 are currently rented. It's rent ready and in good shape all around, however the previous owner was a bit of a crook and mistreated his tenants. 

The total m2 is 875m2 and best rent scenario fully tenanted is 555kr (86$) per m2.

This by far the cheapest, but empty and we would have to rebrand the place repair the bad rep the place has currently.

deal b)

This is a fully tenanted deal in good shape on the mls. It's about 20 min drive from a bigger city and a 14 unit property and has 825m2 doing about 833kr. (128$) per m2. The price on this (or the price on the material) 7.400.000kr. (1.138.000$) and looks like an ok deal, if the price can be negotiated. 

Deal c)

This is in center of a midsize city that universities ect. Its 10 units build in year 2000 and currently has a contract with the government that provides tenants with special needs which makes it 100% tenanted all of the time. It's 691m2 an makes 763kr. (117$) per m2. It's by far the priciest at 9.200.000kr. (1.415.000$) however in the material they say that they are willing to sell if we pay approximately 150.000$ and take over the existing loan of about 9.000.000kr. (1.385.000$)

So to recap, I'm looking at three deals that are very different, but in each their own way attractive.

I would love hear your thoughts and provide any information you might need.

best regards

Leo

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    9y

    Disclaimer: I know nothing about Denmark other than it's a beautiful country, most of its people are happy, and it's really flat. And it borders Germany and the North Sea :)

    Given the choice between MFH in rural or urban areas, I'd almost always go urban. The trend worldwide - not just in the states or Europe - is urbanization. Are your total rent scenarios per year or per month? I assume per year, when I was doing the math. None of them would be great deals in the US - example, 3rd place looks like it brings in $80k/annual on $1.4 million; that would be considered a poor return here. But without knowing what kind of returns are typical for your area, I don't think anyone can say which of those is the best deal.

    Based on my admittedly limited knowledge of the continent, I would say that your lowest risk would be the urbanized building - quite new, accessible to different types of populations, not constrained by lack of transportation, no vacancies. 

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  • Leo M Christensen
    OP
    Investor · odense, denmark · Member since 2016 · 14 posts · 5 votes
    9y

    Hi JD.

    The numbers I'm showing are all annual. And yes the returns in DK aren't great which is exactly why I'm looking at MFH to be able to make it. I see your point in rural vs urban. 

    Thank you for your feedback. It's much appreciated.

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  • Suhan Junaid
    Rental Property Investor · Lake Worth, FL · Member since 2016 · 29 posts · 16 votes
    9y

    Hey @Leo M Christensen, I don't fully understand some of your abbreviations (like m2, etc.) - but generally the way I would look at it is if you're investing for cash flow or appreciation. If you're following the BRRRR strategy, you're keen on how much cash you can pull out from each purchase to redeploy. In the US mortgage market, 6+ multifamily unit is considered a commercial property (5 units or more are commercial here). In commercial loan situations (in the US), the property generally has to support the mortgage payment, expenses, etc. from the income it generates. Therefore, you'd probably favor the property that has the strongest cash flow. If commercial loan situation is not true in Denmark - then probably look at which property can appreciate quickly (so long as it's profitable enough) so when you refinance, you can pull out the largest chunk of cash.

    The other way I'd also evaluate this is which property has the best return on equity: as in how much free cash flow you get per dollar invested. For instance if I was looking at property that cost US$100,000, required 25% down (equity) - so $25,000 in this case, gross rent of $1,000 and monthly expenses of $300 so net rent after expenses of $700. So you're getting $700 for investing $25,000. So your annual return on the $25,000 is 33.6%. That's ($700 * 12 months) / $25,000. 

    If you can clarify the numbers above, happy to revisit.

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  • Leo M Christensen
    OP
    Investor · odense, denmark · Member since 2016 · 14 posts · 5 votes
    9y

    hi @Suhan Junaid.

    m2 is square meters, like you use square-footage as a measurement.

    The differentiation between private and commercial in Denmark is 6 unit and up, so these deals are all considered commercial, which is what I'm intentionally pursuing. This is why property A can be bought at the lowest price due to only 2 out of 9 units are currently rented, however it's in a rural area which can influence future vacancy and, as I described, in a best case the rental income per square meter (or square foot) is the lowest of the 3 deals. 

    My personal preference of real estate strategies is BRRRR, because that, to me, makes the most sense. This means that deal A should, on paper, have best chance for appreciation through a better run operation.

    The situation is that deal A is owned by the bank, which is trying to unload their real estate holdings currently, because they're trying shift direction. I'll try to break deal A down with the current numbers I know:

    current annuals:

    rents: 116.000 kr (17.800$)

    expenses: 117.000kr (18.000$) this includes management set at 30.000kr (4.600$) which I or wee would do our selves for now.

    So the deal is running a negative on operations alone currently, which plays in favour for the negotiation. However, in order to make any positive cashflow after financing we would need minimum 7 units filled asap. The units are rent ready and in really good shape so maintenance and cap-ex would be at a minimum for the foreseeable future. In the proforma set at 45.000kr. (6.900$).

    The valuation of this commercial property is would set it at factor of 10 x current income, eg. 116.000 x 10 = 1.160.000kr. (178.000$)

    The BRRRR comes in getting it fully rented at a monthly rent of 4.500kr (692$)

    (4.500 x 12 months) x 9 units = 486.000kr (74.700$)

    So future valuation should be (using 10x factor) 4.860.000kr. (747.000$)

    I know my valuation calculation is pretty basic.. what do are your thoughts?

    regards

    Leo

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